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Glossary - Swiss Annuities and Life Insurance

The following is an overview of the most common terms used with regard to international health insurance.

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An IRS-approved, tax-free transfer of funds from one insurance policy to another insurance policy. From an insurance policy to an annuity, or from one annuity to another annuity.

The age at entry is a deciding factor in the calculation of a premium when a life insurance contract is being drawn up. It corresponds to the difference between the commencement date of the insurance and the date of birth of the prospective insured person. Age at entry is expressed in whole years with fractions over six months being rounded up to the greater whole year.

Age of the insured person at the expiry of the insurance contract.

To convert a rate of any length into a rate that reflects the rate on an annual (yearly) basis. This is most often done on rates of less than one year, and usually does not take into account the effects of compounding. The annualized rate is not a guarantee but only an estimate, and its accuracy depends on the variance of the rate. This rate is also known as "annualized return" and is similar to "run rate".

To convert a taxation period of less than one year to an annual (yearly) basis. This helps income earners to set out an effective tax plan and manage any tax implications.

Total of the number of Accumulation Units times the Accumulation Unit Value for a Variable Annuity. Similar procedure is followed in the calculation of the current market value of a mutual fund found by multiplying the number of accumulation units times its net asset value.

A person who receives the benefits of an annuity or pension.

The person upon whom a life-insurance contract is based, in other words, the annuitant is the beneficiary of an annuity or pension.

An annuitant can be the policyholder or someone else to whom the title was designated. Proceeds of the contract are given to the beneficiary upon the annuitant's death in order to protect the beneficiary from a loss of income.

A financial product sold by financial institutions (mainly insurance companies) that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

Annuities can be structured according to a wide array of details and factors, such as the duration of time that payments from the annuity can be guaranteed to continue. Annuities can be created so that, upon annuitization, payments will continue so long as either the annuitant or their spouse is alive. Alternatively, annuities can be structured to pay out funds for a fixed amount of time, such as 20 years, regardless of how long the annuitant lives.

Annuities can be structured to provide fixed periodic payments to the annuitant or variable payments. The intent of variable annuities is to allow the annuitant to receive greater payments if investments of the annuity fund do well and smaller payments if its investments do poorly. This provides for a less stable cash flow than a fixed annuity, but allows the annuitant to reap the benefits of strong returns from their fund's investments.

The different ways in which annuities can be structured provide individuals seeking annuities the flexibility to construct an annuity contract that will best meet their needs.

The process of converting an annuity investment into a series of periodic income payments. Annuities may be annuitized regularly, over a long or short time period, or in some cases, in one single payment.

After an annuity has been through the process of annuitization, the investment is said to have been annuitized. Annuitized investments are not necessarily paid out completely to the beneficiaries.

The application is the expression of intention by which the applicant expresses his/her will to conclude a contract in binding fashion, such that a positive counter-declaration (acceptance) by the recipient is all that is required for the establishment of the contract. The application for concluding an insurance contract is normally initiated by the person interested in obtaining insurance (the potential policyholder). It must contain all objectively significant contractual points (insured perils, insured objects, insured benefits, premiums, inception and duration of the insurance) and any other points that either party considers to be significant. Normally an application form is used to make an application. The General Conditions of Insurance (GCI) are either included in this or are referred to therein. In the latter case, the GCI must be issued to the applicant before submission of the application, as otherwise the application is not binding.

A group of securities or other investments that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments).

In addition to the three main asset classes, some investment professionals would add real estate and commodities, and possibly other types of investments, to the asset class mix. Whatever the asset class lineup, each one is expected to reflect different risk and return investment characteristics, and will perform differently in any given market environment.

Asset classes and asset class categories are often mixed together. In other words, describing large-cap stocks or short-term bonds asset classes is incorrect. These investment vehicles are asset class categories, and are used for diversification purposes.

The simple mathematical average of a series of returns generated over a period of time. An average return is calculated the same way a simple average is calculated for any set of numbers; the numbers are added together into a single sum, and then the sum is divided by the count of the numbers in the set.

see Secrecy

A proceeding in a court in which an insolvent debtor's assets are liquidated and the debtor is relieved of further liability.

The market value of a portfolio at the inception of the period being measured by the customer statement.

A standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose.

The beneficiary, who may be either a natural person or a legal entity, has an expected entitlement to the insured benefits. The beneficiary is specified by the policyholder and may be named as the beneficiary of the entire sum insured or of a proportion thereof.

An individual or firm which acts as an intermediary between a buyer and seller. Insurance Brokers are usually remunerated by commissions from the insurance companies. By arranging an insurance through a broker, the clients pay no more in premiums than going directly to the insurance company. Rather, the clients save time and money because they benefit from the broker’s comprehensive advisory and support services.

This form of insurance implies the payment of the insured benefit in the form of a capital sum (a single payment) the amount of which is stipulated in the insurance contract.

Insurance brokers are remunerated by commissions from the insurance companies. Such commissions as well as other administrative costs/fees are included in the calculations of the insurance company. There are no extra fees and, in case of Swiss annuity and life insurance, there are practically no penalties for cancellation of the policy even after a short period of time.

Establishment of the insurance contract subsequent to acceptance of the application by the insurer.

The person or persons designated to receive the death benefit if the primary beneficiary dies prior to the death of the insured.

A binding agreement between two or more parties for performing, or refraining from performing, some specified act(s) in exchange for lawful consideration.

The date of issue of the contract.

The legal safeguards that prohibit any person or governmental authority from seizing a life insurance or annuity policy that is governed by insurance laws.

The risk that a business' operations or an investment's value will be affected by changes in currency exchange rates. For example, if money must be converted into a different currency to make a certain investment, changes in the value of the currency relative to the home currency will affect the total loss or gain on the investment when the money is converted back. This risk usually affects businesses, but it can also affect individual investors who make international investments.

The amount on a life insurance policy or pension that is payable to the beneficiary when the annuitant passes away.

A type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which the plan is converted into an annuity and payments are received.

A deferred annuity can be either variable or fixed.

This type of annuity also provides a death benefit, so that the beneficiary of the annuity is guaranteed the principal and the investment earnings.

Annuity payments begin after a deferral period predefined by the owner if the insured person is alive at that date. Payments end with the death of the insured person or, at the latest, at the time fixed by the owner.

Annuity payments start after the end of a deferral period, predefined by the owner (provided the insured person is alive at that date), and  continue throughout the lifetime of the insured person.

A risk-management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.

Studies and mathematical models have shown that maintaining a well-diversified portfolio of 25 to 30 stocks will yield the most cost-effective amount of risk reduction. Investing in more securities will still yield further diversification benefits, albeit at a drastically smaller rate.

Further diversification benefits can be gained by investing in foreign securities because they tend to be less closely correlated to domestic investments. For example, an economic downturn in the U.S. economy may not affect Switzerland's economy in the same way. Therefore, having Swiss investments would allow an investor to have a small cushion of protection against losses due to an American economic downturn.

Most non-institutional investors have a limited investment budget, and may find it difficult to create an adequately diversified portfolio. This fact alone can explain why mutual funds have been increasing in popularity. Buying shares in a mutual fund can provide investors with an inexpensive way of diversification.

The period of time from conclusion of the contract until expiry of the contract.

Endowment Insurance is one type of life insurance. It not only guarantees benefits in the event of premature death, but also when the insured person is still alive at the term of the contract. It combines insurance protection with a savings plan for the policy owner. Endowment Policies usually have a fixed maturity date. Typical maturities are ten, fifteen, twenty years up to a certain age limit.

see Currency Risk

Property that a debtor is allowed to retain, free from the claims of creditors who do not have liens on the property. All the property of a debtor which is not attachable under Bankruptcy Law.

1. The economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues. Since expenses are such an important indicator of a business' operations, there are specific accounting rules on expense recognition. Expenses are the opposite of revenues. Examples of expense include payments to suppliers, employee wages, factory leases and depreciation.

2. Money spent or costs incurred that are tax-deductible and reduce your taxable income.

The amount stated on the face of a life insurance policy that will be paid in case of death or at the maturity of the contract. The face amount does not include dividends.

see International Financial Centre

A fixed annuity is a contract that allows you to accumulate earnings at a fixed rate during a build-up period.

You pay the required premium, either in a lump sum or in installments. The insurance company invests its assets, including your premium, so it will be able to pay the rate of return that it has promised to pay.

Among the alternatives is receiving a fixed amount of income in regular payments for your lifetime or the lifetimes of yourself and a joint annuitant. That is called annuitization. Or, you may select some other payout method.

The insurance company assumes the risk that you could outlive your life expectancy and therefore collect income over a longer period than it anticipated.

Annuity payments are made for a fixed number of years determined by the owner (5 years minimum).

A fraudulent conveyance is a civil cause of action. It arises in debtor/creditor relations, particularly with reference to insolvent debtors. The cause of action is typically brought by creditors or by bankruptcy trustees. The usual fact situation involves a debtor who donates his assets, normally to an "insider", and leaves himself nothing to pay his creditors as part of an asset protection scheme. However, it is not uncommon to see fraudulent conveyance applications in relation to bona fides transfers, where the bankrupt has simply been more generous than they should have or, in business transactions, the business should have ceased trading earlier to avoid giving certain business creditors an unfair preference (see generally, wrongful trading). If prosecuted successfully, the plaintiff is entitled to recover the property transferred or its value from the transferee who has received a gift of the debtor's assets.

see Fraudulent Conveyance

Professionals in high-liability professions (such as lawyers, medical doctors, etc.) who go without malpractice insurance are sometimes described as “going naked”.

The minimum interest rate under Swiss insurance law that an insurance company can pay on an annuity contract.

Immediate annuities convert a sum of money to a source of regular income. One way they are frequently used is as a source of retirement income.

You buy an immediate annuity contract with a lump-sum purchase. You begin receiving income from the annuity either right away or within a specific period of time.

A fixed immediate annuity guarantees the amount of income you will receive in each payment, based on the claims paying ability of the insurance company selling the contract.

A variable immediate annuity pays income based on the performance of the annuity funds, or sub accounts, you select from those available through the contract.

Annuity payments begin immediately and end after a specified period, but not later than the death of the insured person.

Annuity payments start immediately and continue throughout the lifetime of the insured person.

An annuity contract that is purchased with one payment and has a specified payment plan which starts immediately.

see Insurer

see Secrecy

The person whose life is covered by an insurance policy.

A financial institution that is in the business of selling contracts to indemnify losses for a premium.

In the mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality.

An international financial centre (IFC) is a term used to refer to a jurisdiction or particular city where major providers of cross-border fiduciary services, banking and insurance as well as securities exchanges are located. Besides the large IFCs such as for example New York, London, Switzerland, Hong Kong or Tokyo, many smaller jurisdictions or "offshore" jurisdictions are often also referred to as IFCs.

Investment or investing  is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. Literally, the word means the "action of putting something in to somewhere else" (perhaps originally related to a person's garment or 'vestment').

see Portfolio

A beneficiary designation that can only be changed with the permission of the beneficiary.

A legal arrangement used by people in high-liability professions to thwart malpractice claims.

The tax form used to report the purchase of any foreign annuity to the IRS. A 1% excise tax is due on the initial purchase price of the annuity. However, Swiss annuities are exempt from the 1% U.S. excise tax.

An annuity issued on two individuals under which payments continue in whole or in part until both individuals die.

Annuity payments are made as long as the insured person is alive. Annuity payments are made for a guaranteed minimum number of years, determined by the owner. If the insured person dies during this period, payments continue to the beneficiary for the rest of the period. If the insured person survives this period, payments continue for life.

The time span of how long a particular person is expected to live. Life expectancy is the average number of years a human has before death, conventionally calculated from the time of birth, but also can be calculated from any specified age.

Life insurance is a contract you sign with an insurance company, obligating it to pay a benefit of a certain value in case of death or disability. Life insurance can also be used just for saving reasons.

You may select either term or permanent (whole life) insurance. With a term policy, you are insured for a specific period of time. When the term ends, you must renew the policy for another term or change your coverage. Otherwise, you are no longer insured. With a permanent or whole life policy, you can buy coverage for your lifetime.

You pay an annual premium, typically billed monthly or quarterly, for the coverage. The insurer sets the cost, based on your age, health, lifestyle, and other factors. With a permanent policy, your premium is fixed, but with a term policy it typically increases when you renew your coverage to reflect the fact that you are older.

An annuitization option that provides fixed monthly payments guaranteed to last for the life of the annuitant.

Swiss annuities offer instant liquidity. All capital, plus all accumulated interest and dividends, is freely accessible. Depending on the type of annuity, a minimal penalty in case of withdrawal applies only to an initial period of up to one year. So if funds are needed quickly, they are available and not tied down for a fixed period of time. Furthermore, all Swiss banks will accept Swiss life insurance policies as collateral.

A provision in Swiss insurance and annuity contracts that allows the owner to borrow up to 90 percent of the cash surrender value of the policy.

A sum of money settled in a single payment.

A market is a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange of goods or services. It is one of the two key institutions that organize trade, along with the right to own property. In everyday usage, the word "market" may refer to the location where goods are traded, sometimes known as a marketplace, or to a street market.

Date at which a insurance policy is due for payment.

An actuarial table indicating life expectancy and probability of death.

A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities.

In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.

The term offshore generally means a jurisdiction/country other than one's home jurisdiction. Offshore is however often used to refer to jurisdictions which specialize in certain international financial services, in particular fiduciary services, administration of investment funds, banking and insurance.

A variable universal life insurance policy that is offered by a foreign insurance company on an private placement basis, and which is highly customized for the specific needs of the policyholder. See also Private Placement Life Insurance (PPLI)

Benefit paid out periodically. Payment may be limited in time as in a temporary pension. Alternatively, it may be payable up to the death of the insured person as in the case of old-age pensions.

The policy is a private document setting out the rights and obligations of the parties, issued by the insurer to the policyholder. The policy serves as proof that an insurance contract has been concluded and of its contents.

The contractual partner (individual or group) of the insurer.

A portfolio is a collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.

Portfolio Bond is another term used for a variable annuity / life insurance product that functions as holding vehicles through which an investor can structure a tailor-made portfolio of investments.

Pursuant to the Swiss federal law on insurance contracts, beneficiary entitlements shall cease if the insurance benefits are pledged or if bankruptcy proceedings are instigated against the policyholder. The entitlements shall be reinstated if the pledge lapses or bankruptcy is revoked. An important exception to this rule is the case of a preferred claim under bankruptcy. In this situation, the life insurance policy is not considered part of the estate during bankruptcy proceedings if the primary beneficiaries are the spouse or the children. Thus insurance cover may be maintained for the family.

The premium is the price that the policyholder pays to the insurer in return for which the agreed benefits are provided in the event of a claim. The premium is generally calculated for a period of insurance, a year unless otherwise specified, even if other payment methods are agreed, e.g. monthly installments, single premium.

The premium payer is any individual or business which pays premiums to the insurer.

Premium refund is mostly used in connection with old-age pensions. It implies that, in the event of the insured person's death, the premiums paid or the single life insurance premium (without interest) are paid out - after deduction of any pension payments already made - to the person designated as beneficiary in the contract's beneficiary clause. Premium refund also exists in life insurance. On the death of the insured person, the premiums already paid are refunded, also without interest.

The individual first designated to receive the proceeds of an insurance policy. There can be more than one primary beneficiary.

A Private Letter Ruling is a written statement issued to a taxpayer by the U.S. Internal Revenue Service that interprets and applies the tax laws to a specific set of facts described in the letter ruling request.  Under U.S. Internal Revenue Code § 6110(k)(3), Private Letter Rulings may not be used as precedent.

Private Placement Life Insurance (PPLI) is a very effective wealth building and tax management strategy for high net-worth, accredited investors. It is best utilized as an income tax management tool and investment tool that fits into an integrated estate plan.

PPLI utilizes a highly specialized insurance policy customized exactly to the needs of the insured and his/her estate.

A variable annuity with annuity payments initially deferred that is offered by a foreign insurance company on a private placement basis, and which are typically customized to the specific needs of the policyholder. From the asset protection viewpoint, the hoped-for advantage is that the creditor will not be able to garnish payments until the deferral period ceases and the annuity payments begin.

The gain or loss of an investment over a specified period, expressed as a percentage increase over the initial investment cost. Gains on investments are considered to be any income received from the security, plus realized capital gains.

A rate of return measurement can be used to measure virtually any investment performance, from real estate to bonds and stocks to even things such as fine art, provided the asset is purchased at one point in time and then produces cash flow at some time in the future. Financial securities are commonly judged based on their past rates of return, which can be compared against assets of the same type to determine which investments are the most attractive.

Revenue Rulings represent the U.S. Internal Revenue Service’s official interpretation of the U.S. Internal Revenue Code as it applies to a particular set of facts.

A beneficiary designation that may be changed by the policyholder without the consent of the existing beneficiary.

Risk is the uncertainty of future rates of return, which includes the possibility of loss. This variability or uncertainty causes “rational” investors to expect higher returns on investments where the actual timing or amount of payoffs is not guaranteed.

Evaluation of the declared risks and any additional investigations such as medical examinations, in order to decide whether an application for insurance may be accepted and, if so, whether it should be accepted under normal conditions or with restrictions imposed. The applicant's acceptance period gives the insurer time to carry out this evaluation.

In risk (or term life) insurance, the insurer does not pay benefits if the insured risk (death or disability) does not occur during the duration of the contract. In contrast to whole  life insurance, risk insurance contains no savings element.

The difference between a rate of return and the risk free rate of return is a risk premium. Risk premiums may be calculated for a particular security, a class of securities, or a market.

Return on investment.

Banking secrecy refers to the professional discretion of the banks, their representatives and employees in the business matters of their clients, or third parties, of whom they have gained knowledge in the performance of their duties. The same criminal and civil penalties for violation of a clients privacy imposed on all Swiss bank employees also apply to insurance company employees and brokers for life.

An investment instrument, other than an insurance policy or fixed annuity, issued by a corporation, government, or other organization which offers evidence of debt or equity.

An annuity that provides income benefits for one person only.

Whole life insurance requiring one initial lump sum payment.

Within the context of a life insurance contract, the benefits and premiums are guaranteed for the whole duration of the contract. Care is therefore necessary when calculating the amount of the premiums and factors such as mortality, disability risk, changes in interest rates and costs all have to be considered. As a general rule, the risk trend and interest income performance turn out better than forecast. This is why life insurance companies offer policyholders a share (participation) in the company's surplus as a kind of compensation for an over contribution. The right to surplus participation is given after one to three years of insurance and the policyholder's participation in the company's surplus may be arranged on the basis of different systems. The shares of surplus may be used as follows:

- accrual with interest

- increase in insurance benefits

- reduction in premiums

The early termination of an insurance product by the policyholder.

A penalty for liquidating an insurance or annuity contract early in the deferral period.

Technical Advice Memoranda are written statements furnishing advice prepared by particular U.S. Internal Revenue Service divisions in response to requests from and primarily for the use of U.S. Internal Revenue Service field personnel during the examination stage of a tax controversy.  Under U.S. Internal Revenue Code § 6110(k)(3), Technical Advice Memoranda may not be used as precedent.

Technical interest is the guaranteed minimum interest rate over the total duration of the contract applied to the savings component of the premium for cash value insurance policies. If more than the technical interest is earned, this is often credited to the policyholder in the form of a participation in surplus.

This form of insurance guarantees the payment of a number of pre-arranged periodical installments on the condition, however, that the insured person is still alive. Payment of the annuities ends on the death of the insured person or when the number of agreed installments has been paid. This kind of insurance can be financed either by periodical premiums or by a single premium. Temporary life annuity insurance is of interest to those who are only looking for benefits paid during their lifetime and income paid over a given period.

In term life (or risk) insurance, the insurer does not pay benefits if the insured risk (death or disability) does not occur during the duration of the contract. In contrast to whole  life insurance, risk insurance contains no savings element.

A term is also the length of time between when a fixed-income security, such as a bond or note, is offered for sale and its maturity date.

A variable annuity is an insurance product designed to allow you to accumulate retirement savings.

When you purchase a variable annuity, either with a lump sum or with periodically payments, you allocate the premiums you pay among the various separate account funds offered in your annuity contract.

The (possibly tax-deferred) return on your variable annuity fluctuates with the performance of the underlying investments in your separate account funds, sometimes called investment portfolios or sub accounts.

The removal of part of the cash value from a life insurance policy or annuity contract.

Life insurance which provides coverage for an individual's whole life, rather than a specified term.